Papa John’s Founder Says Resignation Was a Mistake

John Schnatter accuses board of asking him to step down as chairman ‘without apparently doing any investigation’ into his use of a racial slur

Papa John’s founder John Schnatter, here with a pizza box bearing his likeness at the American Music Awards in 2011, resigned as chairman of the company last week, after stepping down as CEO in December.
Photo:
Javier Rojas/Prensa Internacional/Zuma Press

The founder of
Papa John’s International Inc.
PZZA 0.38%
vowed to fight the pizza chain over how it pressed him to step aside for his use of a racial slur, in a controversy that is casting fresh attention on the handling of race issues in corporate America.

John Schnatter
last week publicly apologized for using the slur during media training over the phone with a marketing agency, which was intended to prepare him for returning to his role as brand spokesman. Days later, in a letter to the directors reviewed by The Wall Street Journal, he said he regretted giving up the chairmanship and accused the board of failing to investigate the nature of the phone call and the intention behind his use of the racial slur.

He said in the letter that he wasn’t a racist and that while he articulated the word in a discussion, he didn’t do so as a racial epithet.

“The board asked me to step down as chairman without apparently doing any investigation. I agreed, though today I believe it was a mistake to do so,” Mr. Schnatter said in the letter, dated Saturday. “I will not allow either my good name or the good name of the company I founded and love to be unfairly tainted.”

Papa John’s declined to comment Tuesday, but the company has distanced itself from the man who founded the company 34 years ago. It said in a press release over the weekend that Mr. Schnatter is no longer allowed to use office space at corporate headquarters in Louisville, Ky., and that he would no longer be in any advertising or marketing materials.

Mr. Schnatter on Tuesday visited the corporate headquarters to talk informally to employees and received hugs from people as he walked the halls, according to a person who witnessed his visit.

Mr. Schnatter remains a board member and, according to regulatory filings, as of March he owned 29% of Papa John’s shares, currently valued at about $500 million. The board doesn’t have the authority to remove him as a director and it will be up to shareholders at the next annual meeting in May to decide whether to re-elect him.

The man who built his eponymous pizza chain into the world’s third-largest pizza-delivery company had withdrawn from appearing in ads following a dustup over comments he made in November in connection with the National Football League’s handling of the players’ national-anthem protests. Papa John’s was the official pizza of the NFL, and Mr. Schnatter blamed a sales slide at the chain on declining TV football viewership amid the anthem controversy.

It was in sessions in May aimed at his re-emergence in branding that Mr. Schnatter used the racial slur.

In Saturday’s letter to the board, Mr. Schnatter wrote, the telephone call that month with digital marketing agency Laundry Service was intended to prepare him for questions he might be asked by reporters. When asked during the call whether he is racist, he answered “no,” he said, according to the letter.

“I then said something on the order of, Colonel Sanders used the word ‘N,’ (I actually used the word), that I would never use that word, and Papa John’s doesn’t use that word,” he said in his letter.

He also said in his letter that the marketing agency suggested Papa John’s retain rapper Kanye West to appear with him in ads and that he resisted that suggestion because Mr. West uses the “N-word” in some songs.

Laundry Service declined to comment.

Some people who consult on corporate diversity programs were unsympathetic to Mr. Schnatter’s contentions. While more companies are having frank conversations about race in the workplace, there are limits to how far the candid talk can go, these people say.

Alexis McGill Johnson,
who recently helped design anti-bias training for tens of thousands of
Starbucks Corp.
employees, said she has never had anybody use the N-word in workshops led by her company, Perception Institute. Trainers don’t explicitly say workers can’t use such words but “it’s kind of obvious,” she said. “I’ve never had anybody say anything blatant.”

Joelle Emerson,
founder and chief executive of Paradigm, a consulting firm focused on inclusion, works with business leaders on diversity issues and has never encountered an executive who used the slur in a meeting. She said termination is the right outcome for an executive who crosses that line. “When a white leader uses that word in the corporate setting I don’t think there are two options about how to handle it,” she said.

After Papa John’s sought Mr. Schnatter’s resignation last week, and he agreed, he came to feel that he had acted rashly out of embarrassment about how the situation was construed, and now regrets the decision, according to people familiar with his thinking. These people said he also regrets stepping down as CEO in December following the NFL controversy.

Mr. Schnatter, who has hired Los Angeles trial attorney
Patricia Glaser
to help him with the current controversy, has drawn criticism in other situations, including in 2012 when he said that providing health insurance to employees under the Affordable Care Act would result in costlier pizza.

The company has struggled recently, posting a 4.9% decline in first-quarter total revenue, and the damage from the latest controversy has led it to work on regaining trust with consumers. Everything from a possible sale to a rebranding of the company is on the table, according to people familiar with the matter.

In a letter that Papa John’s Chief Executive
Steve Ritchie
addressed to customers last week, he said the company is appointing an outside expert to audit the company’s policies and procedures related to diversity and inclusion. “Racism and any insensitive language, no matter what the context simply cannot—and will not—be tolerated at any level of our company,” Mr. Ritchie said in the letter.

The board’s lead independent director,
Olivia Kirtley,
sent Mr. Schnatter a letter last week saying the board wished to discuss his full board resignation at a meeting that took place over the phone Sunday night, people familiar with the matter said. Ms. Kirtley couldn’t be reached for comment. That letter prompted Mr. Schnatter’s letter.

“I am confident that an examination of the facts will bear out what I have written in this letter and show that once again our company has demonstrated that it does not know how to handle a crisis based on misinformation,” he wrote in his letter.